Health Care: An Alternate Economic Universe

In July, 2012, the US economy produced roughly the same volume of goods and services as it did five years earlier with five million fewer workers. Yet, during the first four years of the recession (May 2007 to May 2011), the US health system, despite slowing or declining utilization, added 1.149 million workers. Key sectors, specifically hospitals and physician offices, grew their workforces despite declining admissions and office visit volume. (Employment data in this post comes from the Bureau of Labor Statistics’ (BLS) National 4-digit NAICS Industry-Specific Estimates from May 2007 and May 2011.)

Compared to the rest of the economy, health care seems to exist in an alternate economic universe. This would be good news, rather than a problem, if we were not borrowing roughly half of every dollar of general revenue the federal government is spending on health care and if employers were not robbing their workers of wage increases to fund their health benefits.

Hospitals and physician offices saw declines in their core activity in the past few years. Hospital admissions have been flat the past five years, and have shrunk the past two. Even hospital outpatient volume growth has subsided into the low single digits, only partially offsetting the lost admissions. Yet hospital employment rose by over 220,000 workers, or 4.4 percent from mid-2007 to mid-2011.
The fastest growing hospital job occupations: “management” (roughly 14 percent); business and financial operations (roughly 12 percent); and “computer and mathematical” (roughly 18 percent). Clerical employment actually declined, suggesting a shift to automated business operations (and a more complex, higher salaried workforce). If there has been productivity leverage from hospitals’ markedly higher investment in clinical information technology, it is difficult to discern. Laying off clerks and coders, and replacing them with software engineers and managers is not a big economic win.
The largest numerical increase in the hospital workforce, however, was in the category of “healthcare practitioners and technical occupations,” at 193,000 new workers (roughly a 7 percent increase). Hospitals employed 18,000 more physicians, as well as more nurses (117,000), technicians and technologists (almost 35,000) and therapists (12,000) — all on declining core volume. Whether this increasingly intense clinical staffing is paying off in improved patient safety or better coordinated remains to be determined.

An Imbalance Between Supply And Demand In The Physician Sector

The physician sector is where the greatest disjunction between demand (falling) and employment (rising) exists. Physician office visit volume in the US leveled off in 2005, and has declined by roughly 10 percent since mid 2009, according to IMS Health. Despite these declines in activity, physician offices added 165,000 workers, of which half were professionals. Again, the most rapidly growing job category was “management”, but physician offices added 47,000 nursing and clinical support workers (technologists, therapists, etc.).

One suspects that a large number of these folks were helping physicians meet the documentation requirements to qualify for “meaningful use” payments for installing electronic health records, responding to the Physician Quality Reporting Initiative mandated by the Affordable Care Act, and responding to ever more requirements for prior authorization from private health plans. Whether measureable benefits accrue to the society commensurate with these added personnel costs also remains to be determined. A “zero-based” budget type review of the costs vs. benefits of physician documentation requirements imposed both by federal mandates and private payers is long overdue.

Not coincidentally, an epic flight from private medical practice into hospital employment is underway in earnest. If deficit reduction takes hold in the next two years, physician shelter in the hospital will be temporary, as employed physicians are costing hospitals more than $200,000 a year, according to a recent analysis by the Medical Group Management Association.

Surprising Data From Less Closely Tracked Areas Of Health Care

However, the biggest surprise in the BLS employment data was that two thirds of health care’s employment growth from 2007-2011 was in the less closely tracked worlds of subacute, chronic and home based health care. Home health care employment, the fastest growing sector, grew by almost 220,000 workers, an astonishing 24 percent increase in just four years.

Outpatient care centers (freestanding imaging, surgical, physical therapy, dialysis, etc.) added 106,000 workers, a 21 percent increase. “Community care facilities for the elderly” — such as assisted living facilities — added almost 108,000 workers, a near 17 percent increase. And “Offices of Other Health Practitioners” — physical therapists, chiropractors, podiatrists, etc. — added almost 100,000 new workers, more than a 16 percent increase.
These growth areas have several common elements: fee-based payments, a substantial direct pay/patient pay component, and less utilization management attention than the big ticket/big iron parts of the care system. That this growth took place during the worst recession in the US in the post-World War II period, and a major contraction in household income and consumer debt crisis, makes it all the more remarkable.

More Evidence Of The Need For Bundled Payments And Global Fees

Whatever else you can say about US health care’s employment surge, this is a very successful economic activity, larger by itself than the gross domestic product (GDP) of France. But the robust employment growth begs multiple questions, such as, can you contain health spending meaningfully by focusing narrowly on the traditional categories of hospital and physician services?

This employment trend data would suggest the answer is “no”, giving fresh urgency to payment models that bundle all services provided to patients incident to solving a clinical problem into a single payment, or which provide comprehensive services to a population for a global fee (dare we say, “capitation”).

This growth in employment and service intensity, comes at a time when, as I have discussed earlier, overall health spending in the US is growing at the slowest pace in fifty years. One strongly suspects that the five-year long cost moderation is a demand side phenomenon, e.g. that cost growth has moderated because fewer people can afford the health system’s product.

Health care in the US is changing, and becoming more disciplined, team-based and protocol driven. However, the culture of the US health system has changed yet very little. The primordial impulse is to add more (and more expensive) workers whenever new problems need to be solved or new technologies appear, heedless of the expense.

Hospital executives continue speaking wistfully and inaccurately of “reimbursement” as the source of their revenues. This retro word conveys the distinct subtext that they have no responsibility for the cost of their product, that money has been spent, and someone owes them “reimbursement” for it. The proper term is “payment”, and the operative societal question is “are we receiving value for money?” in that payment.

However, most of the new payment models under intense scrutiny — from accountable care, to bundled payment, to “ambulatory intensive care” for dual eligibles, etc. — only pay off if they markedly reduce, particularly, hospital use. Despite a (slowly) aging population and (hopefully) better access through health reform, the trend line for use of our most expensive health resources will likely turn downward as we reduce avoidable use of our system’s most expensive resources.

An Unsustainable Status Quo

But the cost of health care that remains is still far too high to be affordable long term. Those costs will only be reduced by better coordinated care, and by marked improvements in clinical and organizational productivity, a revolution these data suggest has yet to begin. The supply side of the US health care system remains impressively insulated from cost pressure, and focused on the myriad challenges of growth and revenue enhancement.

At some point on the path to deficit reduction, gravitational forces will assert themselves. Policymakers can assist in that process by re-examining the economic logic of the transactional density and documentation burden they are imposing on caregivers. We will know that economic pressure on the health system has reached a decisive juncture when health sector employment stabilizes or reverses course, and health care providers join the rest of the economy in seeking improved productivity and product quality as necessary strategies to survive.

Jeff Goldsmith is president of Health Futures Inc, which specializes in corporate strategic planning and forecasting future health care trends. He is also the author of “The Long Baby Boom: An Optimistic Vision for a Graying Generation.” This post was originally featured on HealthAffairs Blog.

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I know this article is a few years old but after reading it I realize how important telemedicine is to the future of our healthcare industry. I know that it is not the solution for every medical need but I believe it will help with the majority of needs. I do find the stats amazing that there is a decline in office visits and hospital visits when the waiting time seems to be getting longer.

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It’s no surprise. With the continuing problem when it comes to the health of America’s baby boomers, the healthcare industry will surely continue to grow, and if you’ll check the data gathered by BLS, it states that in the upcoming years, the industry would be needing more people in the field to perform the needed work around the healthcare system.

Nonetheless, I am having a hard time reconciling the macro-economic figures that you reference from the BLS which, would suggest that supply is outstripping demand, and the ongoing noise about the impending shortfall of physicians and advanced care providers?

Telemedicine is not only the next level of medical system it will make a great contribution in the field of economy. So, necessary steps should be taken so that patients don’t have to pay extra money for getting the service. The field should be free from those who like to make it a business rather than a form of service.

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Bob Hertz

Aug 28, 2012

I believe that only three or four states have passed laws to restrict balance billing in emergencies — California, Illinois, maybe MN and Connecticut.
The Obama administration did not push this at all, because its goal was to get everyone insured, and to do this they decided to placate the hospitals.

There is an interesting piece in Seeking Alpha on Beware the Health Care Bubble. The author says that when he hears hospitals talk about perpetual demand, it reminds him of mortgage brokers talking about endlessly rising house prices.

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Barry Carol

Aug 27, 2012

Bob –

I think care delivered under emergency conditions, which I define as either care delivered in the ER, or as a result of hospital based care delivered in connection with an ER visit that results in an inpatient admission or care delivered as part of observation status, lends itself to special payment rules. Specifically, payment for such care could be limited by law to some reasonable percentage above Medicare – perhaps 125% to 150% of Medicare at most regardless of what the contract rate for non-emergency care might be.

In the past, the employer mentality regarding health insurance was we want to keep our employees happy and whatever the insurance costs, it costs. More and more employers can’t afford it anymore and are finally starting to embrace tiered networks and narrow networks to mitigate cost growth. As a result, these insurance products are gaining traction in more and more markets. It’s about time.

I am no fan of insurance companies, but in one state Aetna rolled out a program for outpatient care that works as follows:

When an MRI or similar procedure is recommended, on a non-emergency basis, the patient is sent a printout on who is charging what in their geographic area.

A free-standing doctor will charge less than half of what a hospital charges.

The patient will have to pay the hospital’s higher fee if they go that direction.

This is a step in the right direction.

Of course if hospitals lose their profits from outpatient care, they will try to raise their rates for emergencies.

Will we have the courage to force hospitals to shrink their budgets? I do not know. Stay tuned.

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Jeff Goldsmith

Aug 27, 2012

The tiered network/reference pricing model Bob talks about is the only solution I can think of. There is no reason why ANYONE should pay $3000 for an MR scan when there’s a $600 scan right across the street, read by the same radiologist! And the only way to do it is to give consumer the data, and a share of the responsibility for the five fold increase. It should also apply for cardiac revascularization, cancer treatment, obstetrical deliveries etc. . .

That’s basically what bundled payments are about. Except that there have to be multiple choices and a fixed contribution beyond which the patient pays. . .

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Barry Carol

Aug 27, 2012

Margalit and Jeff –

One potential countervailing strategy is the tiered insurance network. Hospital owned imaging centers should be in a non-preferred tier for outpatient work based on cost (at contract rates) alone. So should doctors who work for hospitals and bill a facility fee on top of their normal charge for services. If there are less expensive decent quality providers available with practices that aren’t owned by hospitals, patients should be steered to them to the maximum extent possible. While we are certainly not yet near where we need to be with respect to price transparency, insurers have made considerable strides in making it easier for members to find out what their co-insurance amounts will be in advance and what alternatives are available to them within the insurance network. It’s not that hard, at least for non-emergency care that needs to be scheduled well in advance anyway.

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Jeff Goldsmith

Aug 27, 2012

As the WSJ article clearly shows, the present costs of the consolidation far outweigh any notional savings from better co-ordinated care. What’s really going on in the field is a costly scramble for marketshare, wrapped in BS about “accountability”. The average hospital is losing $212k per FTE employed doc, but making it up by charging $3000 for each new MR scan the employed doc orders from the hospital’s imaging department. Lord save us patients from that type of “accountability”. The “new paradigm” hasn’t arrived yet. . . .

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